Planning for unmarried and same-sex couples

New York is only one of four states that still has not defined what marriage consists of, leaving many couples confused and unprepared for the future. The majority of the other states define marriage as a union between one man and one woman. This issue may not seem important, but there are over fifteen hundred federal and state laws (including child visitation rights, power of attorney, and tax benefits) in which benefits, rights and privileges are contingent on marital status.
New York has made the news recently because of the landmark decision of Hernandez v. Robles which holds that denying marriage to same-sex couples violates New York’s constitutional guarantees of equality, liberty and privacy for all New Yorkers. The trial court decided the case in February 2005 and the case was appealed to the appeals court with oral arguments scheduled to start in the fall. The trial court decision means that the New York City clerk may no longer deny marriage licenses to same-sex couples. Since the case was appealed, the judge’s decision is not yet valid.
State Supreme Court Justice Doris Ling reasoned it unfair that in New York the "plaintiffs couples may not own property by their entireties; file joint state income tax returns; obtain health insurance through a partner's coverage; obtain joint liability or homeowner's insurance; collect from a partner's pension benefits; have one partner of the two-women couples be the legal parent of the other partner's artificially inseminated child, without the expense of an adoption proceeding; invoke the spousal evidentiary privilege; recover damages for an injury to, or the wrongful death of, a partner; have the right to make important medical decisions for a partner in emergencies; inherit from a deceased partner's intestate estate; or determine a partner's funeral and burial arrangements."
In addition to marriage, New York has no laws either allowing or prohibiting domestic relation agreements or civil unions between same-sex couples. Unlike marriage, civil unions and domestic partnerships are invalid outside the state in which they occur and do not provide any federal marriage benefits. Because New York does not have any civil union laws giving certain rights to gay and lesbian couples, it is important to create a domestic relationship agreement with the help of a knowledgeable estate planning attorney.
It is crucial to plan ahead because unmarried partners face a lot more obstacles than their married counterparts. Issues that affect domestic partners such as power of attorney have recently surfaced in the wake of Terri Schiavo case. In addition, if you plan on sharing all or even a part of your estate with your partner, it is critical that the details are recorded in a written document. If you are currently living together with a partner, it may be necessary and surely advisable to speak to a specialized estate planning attorney to help create a domestic relationship agreement to ensure that you and your loved ones are protected.

MEDICARE COVERAGE RULES CHANGED

In a major change in Medicare coverage rules, the Obama Administration has agreed to settle a class action lawsuit and end Medicare’s longstanding practice of requiring that beneficiaries with chronic conditions and disabilities show a likelihood of improvement in order to receive coverage of skilled care and therapy services.

The policy shift will affect beneficiaries with conditions like multiple sclerosis, Alzheimer’s disease, Parkinson’s disease, ALS (Lou Gehrig’s disease), diabetes, hypertension, arthritis, heart disease, and stroke.

For decades, home health agencies and nursing homes that contract with Medicare have routinely terminated the Medicare coverage of a beneficiary who has stopped improving, even though nothing in the Medicare statute or its regulations says improvement is required for continued skilled care.  Advocates charged that Medicare contractors have instead used a “covert rule of thumb” known as the “Improvement Standard” to illegally deny coverage to such patients.  Once beneficiaries failed to show progress, contractors claimed they could deliver only custodial care, which Medicare does not cover.  

Source:  www.elderlawanswers.com

The IRA as Inheritance by Jane Bryant Quinn

Do you have an individual retirement account (IRA) that you're leaving to your kids?  Or - flip that - do you expect to inherit an IRA?  Read this column carefully.  It could save you a ton of money in income taxes.

Mistakes are painfully common when IRAs are passed to heirs, says Ed Slott, author of The Retirement Savings Time Bomb...and How to Defuse It.  One wrong move and the entire IRA will be taxed rather than tax-deferred.  Even financial professionals don't always know the rules, Slott says.

An IRA's greatest gift is long-term tax shelter.  The money you put in the plan is invested in mutual funds.  All the earnings -- interest, dividends and capital gains -- grow tax-deferred.  With traditional IRAs, your heirs will owe income taxes when they take money out of the account.  With Roth IRAs, the money comes tax-free.  In either case, the best strategy for heirs is to leave as much money as possible in the account.  The tax-sheltered growth of those investments could continue for years, even decades.  Here's what you and your heirs need to know.

A spouse inherits
Let's start with the easiest case:  You're a spouse who inherits an IRA from your husband or wife.  You can put the IRA in your own name ("retitle" it) -- that's the simplest way -- or roll the money, tax-free, into a new IRA, also in your name.

If it's a traditional IRA, you can leave the money alone until you reach age 70 1/2 ,when required withdrawals begin.  With a Roth IRA, any money you don't need can stay in the Roth for the next generation.

There's a tax wrinkle for younger spouses.  If you need some of that IRA money, you'll potentially owe a 10 percent penalty, as long as you're under 59 1/2.  You can avoid the penalty, however, by retitling the account as an "inherited IRA."

The rules on retitling are very specific.  As an example, say that John Jones dies, leaving his IRA to his young wife, Mary Jones.  The account should be retitled "John Jones IRA (deceased Aug. 1, 2012) for the benefit of Mary Jones, beneficiary."  Once that's done, Mary can start taking money, penalty-free.

There's one more step -- younger wives, please note.  When Mary reaches age 59 1/2, she should retitle the account again, this time in her name alone.  That lets her defer any further withdrawals until she reaches 70 1/2.  If she doesn't take this step, withdrawals must start when her late spouse would have reached 70 1/2.

A child or non-spouse inherits
Now, take the case of inheritors who are not spouses.  Say you're a child receiving an IRA from a parent.  You cannot roll the money into an IRA in your own name.  If you decide to cash out, two bad things happen:  (1) You'll owe income taxes, if it's a traditional IRA.  (2) You will lose the glorious, multi-year (even multi-decade) tax shelter that an inherited IRA can provide.

So you, too, should retitle the account as an "inherited IRA."  For example, say John Jones leaves his IRA to his daughter, Joan.  Joan should retitle it "John Jones IRA (deceased Aug. 1, 2012) for the benefit of Joan Jones, beneficiary."  If the money will be divided among heirs, each recipient should retitle his or her share.  Every year, you're required to make a minimum withdrawal, based on your age, but can take more if you want.  Remember, withdrawals are taxed; the rest accumulates tax-deferred.

Now let's say that Joan dies, naming her son, Jack, as beneficiary.  Jack can retitle the account as an inherited IRA and complete the withdrawals on the same schedule that Joan began.  The family tax deferrals could last for decades more!

What if you inherit a 401(k)?  That, too, can be retitled as an inherited IRA.

Correct titling is critical, says James Lange, author of Retire Secure! Pay Taxes Later.  If you get it wrong, you'll be taxed immediately, on the whole amount.  The lawyer who handles the will can help heirs retitle.  Or send a letter to the mutual fund group that holds the IRA, specifically asking that it create a separate "inherited IRA" for each beneficiary.

Bottom line:  Anyone holding an IRA or 401(k) should leave a note explaining the importance of retitling.  You want your heirs to get as much tax deferral as they can from the money you leave them.

This article originally appeared in the aarp.org/bulletin, October 2012.  Jane Bryant Quinn is a personal finance expert and author of Making the Most of Your Money NOW. 

Romney's Plans for Medicaid

As the presidential campaign unfolds, the differences in approaches to Medicare by President Barack Obama and Republican nominee Mitt Romney have taken center stage. But what is getting far less scrutiny: Romney's plans for Medicaid. He would convert the health care program for the poor, disabled and elderly into a block grant to the states and sharply reduce funding over time. Middle-class Americans should be especially wary, since it's Medicaid, not Medicare, that covers nursing home care for aged and infirm parents and grandparents. Without Medicaid's safety net, it isn't clear what those Americans would do, and Romney doesn't have any good answers.

It's an understandable confusion. People think that since Medicare covers medical services for people over 65, it also pays for nursing home care for elderly people. Medicaid is thought of as a poverty program that provides medical coverage to poor families. But Medicaid is the program that provides long-term care to the elderly and disabled, which accounts for 31 percent of the program's $400 billion annual federal and state spending. Most of the nation's 1.8 million nursing home residents, including more than 77,000 Floridians, rely on Medicaid to pay their bills.

Medicaid's nursing home beneficiaries are not necessarily poor people. During their working years they may have lived productive middle-class lives until becoming infirm and quickly exhausting their assets. No matter how assiduously families save for retirement, there aren't many who could long afford the steep costs of a residential nursing home that can run an average of $80,000 a year. Without Medicaid's essential safety net, members of this vulnerable population would be on their own or might be forced to live with relatives ill equipped to care for their intensive needs.

There is an irony to Romney running mate Paul Ryan's applause line at the Republican National Convention last month that "the truest measure of any society is how it treats those who cannot defend or care for themselves." It was Ryan who authored the plan to convert Medicaid from a strong federal-state entitlement to a block grant program to the states that Romney has incorporated into his campaign. The plan, passed as a budget blueprint by the Republican-controlled House, would gut Medicaid's safety net and focus instead on cutting funds. The nonprofit Center for Budget and Policy Priorities says Medicaid funding would decline by one-third by 2022 under Ryan's plan.

To make up the difference, states that are already struggling under Medicaid's rising costs would have to add substantial state money to the program or - more likely - utilize the new flexibility Romney promises to pare back eligibility, reimbursements and enrollment. Estimates are that states would drop between 14 million and 27 million people from Medicaid by 2021, according to the Urban Institute. In addition, Romney's promise to repeal President Barack Obama's health care reform law would impact Medicaid by eliminating expanded coverage of home and community-based services that help seniors live at home. This fits the you-are-on-your-own agenda of the Republican presidential ticket far more neatly than Ryan's rhetoric about caring for those who can't care for themselves.

Medicaid is a lifeline for poor children and families but also for the nation's middle class whose elderly and disabled loved ones rely on it for long-term care.

  Source:  Tampa Bay Times, September 24, 2012

*This is an editorial piece illustrating one man's opinion.  We thought you might be interested to read his view on this heavily-debated topic.  Keep in mind, while contemplating this issue, that nursing homes in the New York area run about $150,000 per year.

5 Things to Discuss Before Retirement

You may have a vision for your retirement, but does your spouse share that vision? Spouses often disagree about many key retirement details. It is important to work together to come up with a plan you both can accept.

A 2011 study by Fidelity Investments found that many husbands and wives are not in accord about retirement. For example, the study found that one-third of couples disagreed or don’t know where they were going to live in retirement and 62 percent didn't agree on their expected retirement ages.

Here are some important things to discuss with your spouse as you get ready to retire:

1. Timing of retirement. There are many factors that can go into a decision about when to retire, including job enjoyment and financial needs. But couples also need to think about how best to maximize their Social Security benefits. Because Social Security doesn't just pay benefits to a worker but also pays benefits to the worker's spouse, couples need to work together to figure out how to get the most out of their Social Security benefits. For example, a husband can wait until his full retirement age to take benefits on his wife's record. When he does, he can get half of her full benefit. The husband can then wait until age 70 to file on his own work record. At that point, the wife can file a spousal benefit on his record. Each circumstance is different and couples should talk to a financial planner about the best strategy for them.  For more on Social Security’s spousal benefits, click here.
2. Finances. The first hurdle is that both spouses need to understand their financial situation. The Fidelity survey found that wives were much less involved in retirement finances than their husbands. Both spouses need a clear understanding of their finances and whether they are working in sync.
3. Type of lifestyle. What do you expect to get out of retirement? Do you want to travel? Do you want to volunteer? Or do you want to relax on a beach somewhere? It is important to have a conversation about your hopes and dreams for retirement. You can start the process by creating individual wish lists and then comparing them.
4. Health care. Make sure you and your spouse have adequate health care coverage either from Medicare or an employer-based plan. You also need to understand the rules regarding Medicare coverage. For more information about Medicare, click here. For more information about when to sign up for Medicare, click here.
5. Long-term care. Unfortunately, most couples are going to need some type of long-term care for either one spouse or both spouses at some point. There are things you can do to make it easier on yourselves if this need arises. Talk to your elder law attorney about putting a plan together. To find an attorney near you, click here. Doing it early will save lots of headaches and expense later.

Source:  www.elderlawanswers.com, August 24, 2012

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Supreme Court Upholds Health Care Law

In a dramatic victory for President Barack Obama, the Supreme Court upheld the 2010 health care law Thursday, (June 28, 2012) preserving Obama’s landmark legislative achievement.

The majority opinion was written by Chief Justice John Roberts, who held that the law was a valid exercise of Congress’s power to tax.

Roberts re-framed the debate over health care as a debate over increasing taxes.  Congress, he said, is “increasing taxes” on those who choose to go uninsured.

Here is the link to the full text of the ruling: http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf    

The 2010 law, the Affordable Care Act, requires non-exempted individuals to maintain a minimum level of health insurance or pay a tax penalty.

The essence of Roberts’ ruling was:

• “The Affordable Care Act is constitutional in part and unconstitutional in part,” Roberts wrote.
• “The individual mandate cannot be upheld as an exercise of Congress’s power under the Commerce Clause.  That Clause authorizes Congress to regulate interstate commerce, not to order individuals to engage in it.”
• But “it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but (who) choose to go without health insurance.  Such legislation is within Congress’s power to tax.”

Roberts made a point of noting that he and the other justices “possess neither the expertise nor the prerogative to make policy judgments.  Those decisions are entrusted to our Nation’s elected leaders, who can be thrown out of office if the people disagree with them.  It is not our job to protect the people from the consequences of their political choices.”

The law, Roberts wrote, “makes going without insurance just another thing the Government taxes, like buying gasoline or earning income.  And if the mandate is in effect just a tax hike on certain taxpayers who do not have health insurance, it may be within Congress’s constitutional power to tax.”

He said, “The question is not whether that is the most natural interpretation of the mandate, but only whether it is a ‘fairly possible’ one.”

He said the Supreme Court precedent is that “every reasonable construction” of a law passed by Congress “must be resorted to, in order to save a statute from unconstitutionality.”

Veteran Supreme Court lawyer Tom Goldstein told NBC’s Pete Williams that “the Affordable Care Act was saved by Chief Justice John Roberts.”  Goldstein said the Obama administration “got the one vote they really needed in Chief Justice John Roberts.”

Obama hailed his victory: “The highest court in the land has now spoken.  We will continue to implement this law and we’ll work together to improve on it where we can.”  But he urged Americans to refrain from re-fighting “the political battles of two years ago” or trying to “go back to the way things were.”

For individuals who choose to not comply with the individual insurance mandate, Congress deliberately chose to make the penalty fairly weak: only $95 for 2014; $325 for 2015; and $695 in 2016.  After 2016, that $695 amount is indexed to the consumer price index.

Congress specifically did not allow the use of liens and seizures of property as methods of enforcing the penalty.  Non-compliance with the mandate is also not subject to criminal or civil penalties under the Tax Code and interest does not accrue for failure to pay the penalty in a timely manner, according to the congressional Joint Committee on Taxation.

NBC’s Pete Williams reported that Roberts reasoned that “there’s no real compulsion here” since those who do not pay the penalty for not having insurance can’t be sent to jail.  “This is one of the scenarios that administration officials had considered that if the court did this they would consider it a big victory.”

In his reaction to the court’s decision, Republican presidential contender Mitt Romney said, “What the court did today was say that Obamacare does not violate the Constitution.  What they did not do was say that Obamacare is good law or that it’s good policy.”  He said the ruling had made it clear “If we want to get rid of Obamacare, we’re going to have to replace President Obama.”

But in a major victory for the states who challenged the law, the court said that the Obama administration cannot coerce states to go along with the Medicaid insurance program for low-income people.  The financial pressure which the federal government puts on the states in the expansion of Medicaid “is a gun to the head,” Roberts wrote.

“A State that opts out of the Affordable Care Act’s expansion in health care coverage thus stands to lose not merely ‘a relatively small percentage’ of its existing Medicaid funding, but all of it.”  Roberts said.  Congress cannot “penalize States that choose not to participate in that new program by taking away their existing Medicaid funding,” Roberts said.

The Medicaid provision is projected to add nearly 30 million more people to the insurance program for low-income Americans – but the court’s decision left states free to opt out of the expansion if they choose.

Source: Tom Curry, msnbc.com National Affairs Writer, June 29, 2012, 7:15am.

Appeals Court: Denying federal benefits to same-sex couples is unconstitutional

A federal appeals court has ruled that the Defense of Marriage Act, a law that denies a host of federal benefits to same-sex married couples, is unconstitutional.

The 1st U.S. Circuit Court of Appeals in Boston ruled Thursday that the act known as DoMA, which defines marriage as a union between a man and a woman, discriminates against gay couples.

The law was passed in 1996 at a time when it appeared Hawaii would legalize gay marriage.  Since then, many states have instituted their own bans on gay marriage, while eight states have approved it, led by Massachusetts in 2004, and followed by Connecticut, New York, Iowa, New Hampshire, Vermont, Maryland, Washington state and the District of Columbia.  Maryland and Washington’s laws are not yet in effect and may be subject to referendums.

The appeals court agreed with a lower court judge who ruled in 2010 that the law is unconstitutional because it interferes with the right of a state to define marriage and denies married gay couples federal benefits given to heterosexual married couples, including the ability to file joint tax returns.

The 1st Circuit said its ruling wouldn’t be enforced until the U.S. Supreme Court decides the case, meaning that same-sex married couples will not be eligible to receive the economic benefits denied by DoMA until the high court rules.

“We are thrilled that another court – this time, the 1st Circuit Court of Appeals – has ruled that it is unconstitutional to deny respect to the marriages of lesbian and gay couples,” said Camilla Taylor, National Marriage Project Director for Lambda Legal.  “We congratulate our colleagues at GLAD (Gay and Lesbian Advocates & Defenders) for achieving this wonderful victory.”

During arguments before the court last month, a lawyer for gay married couples said the law amounts to “across-the-board disrespect.”  The couples argued that the power to define and regulate marriage had been left to the states for more than 200 years before Congress passed DoMA.

An attorney defending the law argued that Congress had a rational basis for passing it in 1996, when opponents worried that states would be forced to recognize gay marriages performed elsewhere.  The group said Congress wanted to preserve a traditional and uniform definition of marriage and has the power to define terms used to federal statutes to distribute federal benefits.

More than 1,000 benefits in question
Two California federal judges earlier said the act violated constitutional standards.

Judge Claudia Wilken of Oakland ruled May 24 that the law legalized bigotry by withholding more than 1,000 federal benefits – such as joint tax filing, Social Security survivor payments and immigration sponsorship – from gays and lesbians legally married under state law.

Judge Jeffrey White of San Francisco also declared DoMA unconstitutional and ordered the government to provide family insurance coverage to the wife of a lesbian court employee.  White’s ruling has been appealed to the Ninth U.S. Circuit Court of Appeals, which will hear the case in September.

President Barack Obama withdrew his administration’s defense of the law in February 2011, saying he considered it unconstitutional, but it is being defended by lawyers hired by House Republican leaders.

On May 9, Obama declared in an interview with ABC News his unequivocal support for gay marriage, becoming the first president to endorse the idea.

Obama said, “I have hesitated on gay marriage in part because I thought that civil unions would be sufficient.”  He added that he “was sensitive to the fact that for a lot of people the word ‘marriage’ was something that invokes very powerful traditions, religious beliefs and so forth.”

Now, he said, “it is important for me personally to go ahead and affirm that same-sex couples should be able to get married.

We here at Davidow, Davidow, Siegel & Stern agree with this decision and will keep you posted on further developments.

Source:   www.msn.com, May 31, 2012, Msnbc.com’s Miranda Leitsinger and Jim Gold and The Associated Press contributed to this report.